Allocating the right amount of materials or products to achieve and maintain adequate service levels can improve inventory planning, as author Gregory Hartunian highlighted in a post published earlier this year in the Supply Chain Management Review. The demand driven inventory planning tips he offered in his post, in the form of the Service Level-Driven Inventory Planning implementation model, can come in handy if you find yourself managing the inventory of a small and medium-sized business and are trying to make the most of a small inventory budget.
Putting Service Level-Driven Inventory Planning into practice requires first that you determine the desired service level and then establish service level targets for the items in your inventory. The easiest way to do this is by using an effective inventory planning tool, such as a small business inventory forecasting app, which can quickly generate sales forecasts based on relevant inventory and sales data. Here are a few important tips that will help you make demand-driven inventory planning work for your business.
- Ensure your sales team and operation teams agree upon a common service level, by evaluating for each item in your inventory the likelihood that it will be available in stock when needed. As an example, a 90% service level means that there’s a 10% chance of stocking-out.
- Consider factors such as the Fill Rate, number of units versus individual customer orders, and the customer quoted lead time used.
- Figure out how much inventory you need to maintain the service level, while taking into account potential demand variabilities.
- Use technology, such as a small business inventory forecasting app, to quickly identify under-stocked and overstocked items, while taking into account your desired service levels.
- Look deeply at fill rates to understand how many items had not been filled from stock but shipped from suppliers in uneconomical ways.
- Pay attention to inventory items that have an intermittent demand, as opposed to those which have a more uniform demand pattern. Again, an inventory planning tool provides the data, graphs, and business analysis tools that makes the identification of such items easier.
- Determine whether attaining high service level goals for critical items is worth the extra inventory investment that Service Level-Driven Inventory Planning often requires.
Demand driven inventory planning can be far more cost-effective for a business than other inventory management strategies, but to work, it requires statistical analysis of accurate data. An inventory planning tool such DataQlick comes with a convenient inventory management view and control feature that enables you to measure inventory performance and view sales forecasts in a convenient, easy-to-understand format. Armed with the right software, your business can make demand driven inventory planning a winning strategy.